By Monique Vanek
(PRETORIA) Government faces a revenue gap of R48.2bn in 2018. This was revealed by South Africa’s Finance Minister Malusi Gigaba in his maiden Budget speech on Wednesday. To address this shortfall, Treasury plans to hike value-added tax (VAT), for the first time since 1993 as well as place a greater burden of tax on wealthy South Africa, whilst protecting the most vulnerable. Although, tax revenue collections for 2017/18 are expected to marginally outperform projections set out in the 2017 Medium Term Budget Policy Statement (MTBPS), Gigaba in his speech argued that acting now will improve the economic outlook and increase space for investment growth.
Treasury in its Budget Review argues that the decision to increase the VAT rate by one percentage point was taken as it was estimated “to have the least detrimental effects on economic growth and employment over the medium term”.
The tax proposals will generate an additional R36bn in tax revenue for 2018/19.The largest contributor will be the R22.9 billion from the one percentage point increase in VAT and R6.8 billion from lower-than-inflation increases to the personal income tax rebates and brackets.
The main proposals are: